More than a quarter of graduates who studied subjects such as sociology, creative arts and design, and performing arts earn less than the national living wage five years after finishing their degree, according to a new report that lays bare the scale of the crisis facing Britain’s higher education system.
The study by the think tank Policy Exchange, titled Tarnished Towers: Fixing England’s Broken Higher Education System, found that in 15 of the 34 broad subject classifications it examined, more than one in four graduates were earning below the National Living Wage of £12.71 per hour for those aged over 21. In 27 of the 34 subject areas, median graduate earnings after five years fell short of the national median for full-time employees, which stands at £39,039. Those 27 subjects account for 87 per cent of all graduates analysed in the report.
The data paints a stark picture of the graduate labour market. Only 57 per cent of graduates are in full-time work 15 months after finishing their course, and a third are not in what are considered graduate-level jobs. At least 30 per cent of degrees offer no net economic return when measured for both the individual and the taxpayer, the report argues. The so-called graduate premium – the earnings advantage of graduates over non-graduates – has collapsed, the think tank warns, a symptom of what it describes as the “twin policies of mass expansion and marketisation” pursued over three decades.
Yet the financial picture is not uniformly bleak. Medicine and dentistry graduates earned an average of more than £43,900 just 15 months after graduation in the 2022/23 cohort, while engineering and technology graduates averaged £36,115. At the other end of the scale, creative arts degrees – including cinematics and photography, art, and media studies – were associated with the lowest average returns, with starting salaries often ranging between £18,000 and £25,000, though digital arts show some potential for growth. The discounted difference in lifetime earnings between graduates and non-graduates is estimated at £430,000 for men and £260,000 for women, but these averages hide deep variation: returns for creative arts or social care degrees can be negative for men, while economics and medicine command much higher premiums.
Funding crisis: a perfect storm
Policy Exchange argues that the UK’s decade-long freeze on tuition fees, combined with high inflation, rising pension costs and a sharp drop in international student numbers, has created a “perfect storm of a funding crisis” for universities. The maximum tuition fee for British students remains capped at £9,790 a year for standard full-time courses, a figure that has not kept pace with costs. The average student now leaves university owing £53,000.
The financial pressures on the sector are severe. The research briefing notes that English universities face a risk of institutional insolvency, driven by reductions in public funding, rising costs and changes to immigration policies that have reduced income from international students. The government is introducing reforms to strengthen standards and address misuse of student and graduate visa routes, including potentially reducing the Graduate visa period and exploring a levy on international student income.
The student loan system itself has come under heavy criticism. Plan 2 loans – which apply to English students who started university between 2012 and 2022, and Welsh students who started since 2012 – carry interest rates generally set at RPI plus 3 per cent while studying, and ranging from RPI to RPI plus 3 per cent after graduation depending on income. From 1 September 2026, the government will cap interest rates on Plan 2 and Plan 3 loans at 6 per cent as a temporary measure, intended to protect graduates from potential inflation spikes. The RPI rate in March 2025 stood at 3.2 per cent, which would have produced a maximum Plan 2 rate of 6.2 per cent without the cap.
Labour announced in April that it was capping interest rates for Plan 2 and Plan 3 borrowers, following significant pressure over the cost of repayments. Repayments for Plan 2 loans begin when a graduate earns more than £29,385 a year, with 9 per cent of income above that threshold going towards the loan. From April 2027, that repayment threshold will be frozen at £29,385 for English students – a move described as “fiscal drag” – meaning it will not rise with inflation. Any remaining debt is written off after 30 years.
The funding crisis is not limited to student debt. The age threshold for the National Living Wage was lowered from 23 to 21 in April 2024, and the rate increased to £11.44 per hour – a 9.7 per cent rise, the largest cash increase to date. For context, the voluntary “Real Living Wage” currently stands at £12.00 an hour across the UK and £13.15 in London. The Conservative government has aimed to halve the number of people on low pay since 2010 through the National Living Wage.
Proposed solutions: fewer students, higher standards
Policy Exchange has put forward a series of far-reaching recommendations. Chief among them is a call to reduce the number of university places by 30 per cent over five years, targeting institutions with high dropout rates, low progression to skilled employment and low graduate earnings. The think tank also urges the government to freeze tuition fees for five years and abolish real interest rates on Plan 2 student loans.
Other proposed reforms include tougher entry standards – such as a national entry test for applicants who do not have at least C grades at A-level or equivalent – and a ban on franchise courses, which the report says provide minimal benefits and are detrimental to both students and taxpayers. It also recommends closing the student loan book to for-profit institutions, ending funding for foundation years, and reclassifying universities into two tiers: “global universities” – around 22 institutions, largely from the Russell Group – which would have higher fee caps and international student limits, and “regional universities” with lower fee caps.
Shadow education secretary Laura Trott backed the report, saying: “The report exposes just how unfair and demoralising the current system has become. Many graduates do exactly what they were told would secure a better future, only to find themselves burdened with debts for qualifications that do not provide the opportunities they were promised.”
A government spokesperson responded by saying: “We’re cracking down on poor quality courses so that students can be confident they’re getting value for money from university degrees, while making the system fairer by reintroducing targeted maintenance grants and capping interest rates on student loans. The problems we inherited are deep rooted and it’s why we’re bringing forward the biggest youth employment reforms in a generation. This includes £2.5 billion of funding, more apprenticeships, and business grants. Early intervention is also key – we’re helping school children future proof their careers with new top quality vocational routes and better careers advice.”
The findings come just two weeks after a separate report showed that the number of young people not in work or education had risen to more than 1 million for the first time since 2013. In the July–September quarter of 2025, there were 946,000 16- to 24-year-olds not in education, employment or training across the UK, an increase from 2019. The rise has been driven by both rising unemployment and economic inactivity, with long-term sickness a primary factor behind the latter.
Despite the grim financial picture, the research briefing notes that higher education also generates wider wellbeing benefits that are not captured by earnings data alone. Returns to a degree vary significantly by socio-economic background and ethnicity: privately educated students often see higher financial returns, but state-educated students from poorer backgrounds also experience substantial gains because their baseline earnings prospects are lower. In 2024, the employment rate for working-age graduates was 87.6 per cent, compared with 68.0 per cent for non-graduates, while 67.9 per cent of graduates were in high-skilled employment, against just 23.7 per cent of non-graduates. The unemployment rate for graduates stood at 3.1 per cent, compared with 5.6 per cent for non-graduates. The gender pay gap among full-time graduates in full-time paid employment was £40 in 2023/24, with the gap widening to nearly £2,000 among those in high-skilled roles.
